VAT in the United Kingdom: An Ultimate Guide

"VAT in the United Kingdom is too complicated!" "What has changed in the UK tax system since Brexit?" These questions often trouble many businesses looking to enter the UK market. This ever-changing tax environment has left many businesses at a loss. Some even mistakenly believe that the UK's tax system still follows EU regulations.

To ensure that your business runs smoothly, this article will provide you with a detailed guide to UK VAT. Whether it is the basics of VAT, the specific process of registering for VAT in the UK, or compliance solutions, you can find the answers here. Let's scroll down and explore!

What is VAT in the United Kingdom

Presently, the UK tax authority actually has established an independent VAT system. This means it is no longer compatible with the EU's VAT regulations like used to be. As a result, those cross-border businesses that have registered for EU VAT will be unable to enjoy OSS and IOSS schemes in the UK. Also, they are required to comply with UK VAT regulations separately if they want to sell items to UK customers.

Thankfully, the fundamental principles of VAT haven't changed much in the UK. It remains an indirect tax, applied to the value added at each stage of production or service. Specifically, businesses charge VAT on the products or services they sell, and customers end up paying this tax as part of the price.

What is Making Tax Digital

From the 1st of April 2019, all VAT-registered businesses with a turnover above £85,000 are now required to keep digital records and file VAT returns, known as Making Tax Digital(MTD). MTD is a UK government initiative aimed at making it easier and more efficient to fill VAT returns for businesses. All VAT-qualified businesses must maintain digital records through HMRC-recognized software.

Making Tax Digital is important since HMRC will issue penalties to taxpayers who fail to follow the rules correctly. Luckily, setting up MTD is not rocket science. The key is using compatible accounting software like QuickBooks, Xero, or Sage.

All eligible businesses are now required to submit MTD returns on or after April 1, 2022. To comply with MTD, make sure to:

• Choose MTD-compliant, HMRC-recognized accounting software. Then, authenticate your software with HMRC.
• Keep digital records of your business sales and purchases.
• Submit your VAT returns via the compatible software.

VAT Rate in the UK

When it comes to the VAT rate in the United Kingdom, it includes three types - standard rate, reduced rate, and zero rate. Different goods and services are subject to different rates. Moreover, certain items are even exempt from VAT in the UK. Explore the table below for a detailed breakdown.

>> Further Reading: VAT Exempt vs Zero-Rated VAT: What Every Business Needs to Know

Who Needs to Register for VAT in the United Kingdom

For UK business, as long as the total taxable turnover in the past 12 months exceeds £ 90000, or is expected to exceed this VAT threshold within the next 30 days, you must register for VAT in the UK. Also, if your taxable turnover does not reach the threshold, registration is not mandatory, and you can decide whether to register voluntarily.

In addition, for non-UK companies, if your goods are stored in a warehouse or make taxable supplies in the UK, regardless of taxable turnover, you need to initiate the VAT registration process. As mentioned earlier, the EU distance sales VAT registration threshold no longer applies to sales in the UK. Therefore, if you intend to successfully sell products to UK consumers, it is crucial to ensure compliance with UK VAT regulations.

After that, by submitting your business license and legal representative's ID, etc., you can get a unique United Kingdom VAT ID in 2-8 weeks.

What is the United Kingdom VAT Number Format

The VAT number in the United Kingdom will start with the 2-digit country code and then be followed by 9 digits. You might see a VAT number for a UK business like GB123456789. After you obtain a UK VAT registration number, you can start to fulfill the relevant tax obligations.

However, if you have long-term zero declaration, tax arrears, tax evasion, or omission, your VAT ID may become invalid or even canceled by the tax authorities. If you want to check a United Kingdom VAT number, the VATAi VAT Number Validation Tool has you covered.

How to Ensure VAT Compliance in the UK

The consequences of VAT non-compliance are far more serious than you think! If you fail to file and pay the VAT due on time, you may face severe penalties from HMRC, including market access restrictions, product removal, fines, etc. To succeed in the UK market, all sellers should put UK VAT compliance first. The following is a detailed compliance process:

Step 1. Register for VAT in the United Kingdom so as to get your unique identification ID. Then, upload your VAT number to the E-commerce platforms like Amazon dashboard.

Step 2. Select the right UK VAT rate to calculate payable VAT accurately. This usually also involves customs duty, sales VAT, and import VAT.

Step 3. Submit VAT returns to HMRC every quarter. Your first return will be required within 3 months of obtaining the UK VAT number.

Step 4. Regularly check if your UK VAT number is still valid to use. Invalid numbers can lead to unnecessary troubles.

What is the Penalty for Late Submission and Payment of VAT?

In the UK, VAT returns and payments must be submitted by their respective deadlines. Late submission or payment can result in penalties like point penalty, ongoing fines, and late payment interest.

• Penalties For Submitting Late VAT Returns

For every VAT return you do not file on time, you will receive a penalty point. This can cause penalties of £200 once you reach a certain threshold. The penalty point threshold varies depending on the accounting periods.

• Penalties For Paying VAT Late

If you pay in full up to 15 days after the deadline or arrange a payment plan, you won't be liable for a penalty or a fine. But if your VAT payment is 15 days overdue, fixed and daily penalties apply as follows:

Tips to avoid VAT penalties:

To prevent financial losses, keep in mind the dates, keep accurate records, and file your VAT returns on time. If you're struggling with late submission and payment, let VATAi handle this for you. Our professional help, VAT automation software, and instant service can help you optimize and manage your VAT effectively!

FAQs for E-commerce Sellers about VAT in UK

Q1. What documents are required to register for UK VAT?

The documents needed include a business license, a copy of the legal representative's ID card or passport, proof of address, and store-related information.

Q2. What else needs to be done after obtaining VAT?

Firstly, Correctly upload the VAT number to the e-commerce platform's backend.

Secondly, File on time. According to the requirements of the UK, timely and accurate sales declarations and tax payments should be made.

Thirdly, Even after the e-commerce platform withholds and pays the taxes on your behalf, you still need to upload sales reports for filing.

Q3. Can I apply for VAT before my Amazon account is set up?

It is recommended to register the store first or do both at the same time, as the VAT registration documents require the submission of store-related information.

Q4. Is it okay to leave the store name blank during registration because it might be changed later?

You must fill in the information as accurately as possible. The more complete the information provided, the faster the registration process will be, and the easier the subsequent filing will be.

Q5. What is the filing period for UK VAT?

The UK files quarterly, which requires 4 filings per year. The first filing period is within three months after the tax number is issued, and the subsequent filing period is every 3 months.

How VATAi Helps: Reliable VAT Compliance Solutions

This article has walked you through everything about VAT in the United Kingdom, from its applied schemes, and registration eligibility, to the compliance process. After reading, you might have a deeper understanding of UK VAT without a doubt. However, it is challenging to comply with the local regulations as they are no longer in the EU tax system.

In this case, VATAi is ready to help! As a one-stop VAT service provider, VATAi can streamline the compliance process based on various excellent features.

• Offer an automated declaration reminder to ensure your timely filing every cycle.
• Support auto-sync sales data from online marketing platforms like Amazon.
• Equipped with a smart system that can accurately calculate your payable VAT in real-time.
• Provide cost-effective VAT services to meet all your needs.

If you need a partner to handle VAT affairs, feel free to reach out to VATAi for a free consultation!

Need Help with VAT Compliance?

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